Forging a dealership group during a deep recession is fraught with risk, but three bold entrepreneurs -- Robert Johnson, Mack McLarty and Steve Landers -- not only created a profitable venture, they more than doubled the group's original size to 25 stores.
Since the inception of RLJ McLarty Landers Automotive Holdings in 2007, the group has thrived, generating $1.1 billion in revenues last year and climbing into the top 20 of the largest U.S. dealership groups.
There were plenty of doubts along the way.
"Mack and Bob and me -- did we second-guess ourselves some? Yes, a lot," says Landers, the company's straight-talking president and point man for identifying dealerships that fit the group's business strategy.
"But you make your money when you make your buys. And we were buying dealerships in a tough time. People wanted out, and we just took a big chance.
"We actually had great months during the recession. We're very profitable."
The group, of Little Rock, Ark., increased its new-vehicle retail sales 29 percent to 18,885 in 2011, placing it No. 19 on the Automotive News list of the top 125 dealership groups in the United States, which ranks groups based on new-vehicle retail unit sales.
Those figures do not include McLarty's or Landers' separate automotive holdings. McLarty's McLarty Automotive Partners, with other partners including Landers, owns dealerships in China and Brazil and holds the distributorship for Jaguar and Land Rover in Mexico. Landers and his sons own a Toyota-Scion and a Chrysler-Dodge-Jeep-Ram dealership in Little Rock.
The partners also have nonautomotive holdings. That's particularly true of the group's chairman and majority partner, Johnson, 66, who founded Black Entertainment Television, which he sold to Viacom in 2001 for $3 billion. His 60 percent stake makes RLJ McLarty Landers the nation's largest black-owned dealership group, according to Black Enterprise magazine.
RLJ McLarty Landers still wants to buy dealerships, but its "growth won't be as fast or as strong as you've seen in the past," says 65-year-old McLarty, the group's vice chairman and a former White House chief of staff.
As new-car sales pick up, fewer people are looking to sell their dealerships and acquisition prices are climbing, says Landers, 58, a longtime Arkansas dealer.
"They're a little harder to buy right now than they were, but there are still people looking to get out," Landers says.
He says that as the U.S. seasonally adjusted annual sales rate goes up, with many analysts predicting sales of more than 14 million units this year, acquisitions become difficult: "When it was 9.8 million or 10 million they were a little easier to buy."
From 2008 through mid-2010, when doubt swirled about whether Chrysler Group and General Motors would survive the recession, RLJ McLarty Landers added a dozen dealerships. Among those additions: one Chevrolet, one GMC, two Ford and two Chrysler-Dodge-Jeep stores. It also added Chrysler and Dodge to an existing Jeep store.
The partners say there is no ideal number of dealerships for their group. Landers says the group mainly looks for dealerships within its geographic footprint, mostly in the South, that are underperformers with turnaround potential or whose owners are looking for an exit strategy.
With assistance from McLarty's son, Franklin McLarty, the company's senior vice president, and CFO Paul Hart, Landers determines stores' potential for success by dissecting their financial histories department by department and analyzing their markets.
The group's nonluxury brand mix is good, the partners say. But RLJ McLarty Landers lacks luxury marques such as Audi, Acura, BMW, Infiniti and Lexus.
McLarty says the group would like to add luxury brands "but we're not going to pay prices that we don't think are reasonable for those stores." He said the group would expand its geographic boundaries if the right opportunity presented itself.
McLarty and Landers, who once owned competing dealerships in metropolitan Little Rock, have known each other for most of their lives. They are part of multigenerational dealership families that grew their businesses, then sold them to publicly held dealership groups.
McLarty, grade school pals with President Clinton, worked in the Clinton administration from 1993 to 1998. He was introduced to Johnson almost 20 years ago by a mutual friend, Ron Brown, a commerce secretary under President Clinton. McLarty later introduced Johnson to Landers.
In 1999, McLarty's family sold its nine-dealership group to Asbury Automotive Group. McLarty was vice chairman of Asbury's board of directors from 1999 until 2004.
Landers sold his two stores to UnitedAuto Group Inc. in 1995. He was president of UnitedAuto's south central region from 1998 until 2003, overseeing the public retailer's acquisition of 21 dealerships.
McLarty and Landers formed McLarty-Landers Automotive Group in 2005 and started acquiring dealerships.
When RLJ McLarty Landers formed, McLarty and Landers contributed their 10-dealership group to the partnership. For his majority stake, Johnson, then a newcomer to auto retailing, put up an undisclosed amount of cash.
The men say their partnership works because each brings different strengths -- and the same business savvy and entrepreneurial spirit -- to the group.
It doesn't hurt that they trust and like each other, too, they agree.
"Any partnership starts with a foundation of shared values," Johnson says.
"Then you layer on people who genuinely like each other. I don't need to go down and visit the store we own; I don't need to second guess the financial reports."